SBI: As loan growth slows, other income comes to the rescue of banks

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Other revenues have come to the rescue of banks even as they grapple with weak loan growth in the first quarter of the year, according to bank results.

All banks saw year-over-year growth in other income driven by fees and collections from large written off accounts like the old one.

as a result, the contribution of other income to total income has increased.

The trend is the same for large and small banks. For example,

(SBI) reported a 24% increase in other income to Rs 11,803 crore, driven by a 21% increase in fees and a recovery of Rs 1,692 crore from the delisted Kingfisher Airlines account, which increased the proportion of other income to 15% of total income. against 11% last year.

The story is similar in large private sector banks which traditionally have a higher proportion of commission income. HDFC Bank’s other income increased by 54%, driven by fees and commissions and income from foreign exchange and derivatives transactions, increasing the share of other income in total income to 17% from 12% a year ago earlier. The HDFC counterpart also reported a 53% increase in other income driven by commissions despite a decline in cash income.

Analysts say a higher proportion of other income, while legitimate, is mainly due to irregular income flows that are not sustainable. However, they expect core banking income to increase as loan growth picks up later this year.

“Other income has increased in two main ways, namely income from treasury and income from written off accounts. Both of these are very volatile and depend on market conditions and can be overridden. Banks are sitting on surplus SLRs and have been making profits this quarter. This is reflected in the cash flow gains. Having said that, these are both legitimate income streams and there is no need to worry that the quality of earnings will be sustainable, boosting credit growth is important, ”said Asutosh Mishra, manager. research at Ashika Stock Brokerage.

Other income rose for even smaller lenders, as banks dig deep for new sources of income, faced with the twin challenges of depressed loan demand and slow loan recovery in light of wave two. the pandemic.

RBL Bank’s other income doubled to Rs 695 crore, driven by a 137% growth in retail fee income, although total advances edged down to Rs 56,527 crore from Rs 56,683 crore of Rs a year earlier. Even the public sector Bank of India reported a 39% increase in other income due to the recovery of a written off aviation account and foreign exchange income even as the loan portfolio fell 0.18 %.

“This quarter there was also an increase in forex trading income as term premiums declined during the quarter, allowing banks to make profits.

Along with the revaluation of bond investments, this contributed to other income, ”said Anil Gupta, vice president of financial ratings at ICRA.

Gupta expects credit growth to pick up later in this fiscal year, as businesses’ working capital requirements increase due to rising commodity prices. “We are forecasting 8% credit growth for the next fiscal year, which will lead to higher base income and fees, so there is no reason to worry about the outlook,” he said. declared.


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